Govt Introduces IBC Amendment Bill To Cut Delay In Insolvency Process

The government on Tuesday introduced the Insolvency & Bankruptcy Amendment Bill in Lok Sabha, with reforms that are intended to speed up the insolvency process.

The reforms are related with group insolvency, credit-led resolution, and cross-border framework. The legislation proposes amendments in Section 7 of the current law, that deals with mandatory admission of insolvency if default confirmed and conditions met.

Finance Minister Nirmala Sitharaman, while introducing the bill, said it aims to reduce delays, boost value, and improve governance. The legislation has been sent to the select committee for review.

The government further noted that the legislation aligns with global best practices. It proposes out-of-court initiation for faster and cheaper insolvency.

The legislation would also ease judicial burden, promotes business ease, improves credit access.

The government has proposed the group insolvency framework that seeks to efficiently resolve insolvencies, involving complex corporate group structures, minimising value destruction caused by fragmented proceedings and maximising value for creditors through coordinated decision-making.

According to the bill, the cross-border insolvency framework seeks to lay the foundation for protecting stakeholder interests in domestic and foreign proceedings, promoting investor confidence and aligning domestic practices with international best practices. This will also pave the way for improved recognition of Indian insolvency proceedings in other jurisdictions.

Against the backdrop of an average delay of over 434 days in admitting insolvency resolution applications, the government has proposed that an application by the financial creditors should be admitted if a default exists without considering any other grounds.

Another proposal is to expand the definition of resolution plans to include the sale of assets, and the right of the corporate applicant to propose the resolution professional is restricted to ensure fairer and more transparent appointments.

There are also provisions to have a timeline for approval of resolution plans after their receipt by the adjudicating authority, providing an opportunity to the committee of creditors to rectify procedural defects, among other elements.

Also, the bill has proposed changes to enhance efficiency and oversight in the liquidation process by empowering the committee of creditors to supervise liquidation, including a provision for replacing the liquidator by a 66 per cent vote and extending the moratorium available under the CIRP to the liquidation process to speed up company dissolution.

Other key changes include removing the interim moratorium for personal guarantors and introducing a provision to prevent transactions defrauding creditors, and an enabling provision for facilitating different processes for all stakeholders through an electronic portal is provided to enhance efficiency and transparency.

(With PTI inputs)